In a judgment handed down on 4 November 2016 in Goldman Sachs International SA v Novo Banco SA [2016] EWCA Civ, the Court of Appeal has held that a debt claim brought by investors against a “bridge institution” set up by the Bank of Portugal must be pursued in Portugal.

The case arose out of the collapse of the Portuguese bank Banco Espírito Santo (“BES”). In June 2014 an investment fund named Oak Finance Luxembourg SA entered into a loan facility by which it loaned approximately US$785 million to BES. The facility agreement contained a choice of English law and jurisdiction. Shortly thereafter, BES ran into serious financial difficulties. On 3 August 2014 the Bank of Portugal established Novo Banco SA (“Novo Banco”) as a “bridge institution” pursuant to the domestic legislation incorporating the EU Reorganisation and Winding-Up Directive (EC/2001/24) and EU Bank Reorganisation and Recovery Directive (EC/2014/59) into Portuguese law, and issued a decision transferring various liabilities of BES to Novo Banco.

An issue arose as to whether the Oak liability was transferred to Novo Banco or remained with BES. By a further decision on 22 December 2014, the Bank of Portugal declared that the liability was not transferred to Novo Banco.

The claimants commenced proceedings in England in February 2015 against Novo Banco, arguing that the decision of 3 August 2014 had been effective to transfer the Oak liability (which they had since acquired) to Novo Banco and that the 22 December 2014 decision had not been effective to re-transfer it, such that Novo Banco was a party to the facility agreement including the choice of English jurisdiction. At first instance it was held that the claimants had a good arguable case that that was right and that the English court therefore had jurisdiction over the dispute (see previous news article here).

The Bank of Portugal was granted permission to intervene in Novo Banco’s appeal. It contended that the question of whether the 3 August 2014 decision had been effective to transfer the Oak liability to Novo Banco fell to be determined according to Portuguese law and not English law, and that as a matter of Portuguese law the decision of 22 December 2014 was (unless and until set aside in Portugal) authority binding on all parties that the Oak liability was not transferred. That argument was accepted by the Court of Appeal. One member of the court (Sales LJ) further indicated that he would have held if necessary that the 22 December 2014 decision should be recognised as a re-transfer of the Oak liability from Novo Banco to BES.

The claimants are applying for permission to appeal to the Supreme Court.

Tim Lord QC, Thomas Plewman QC and Max Schaefer appeared for Goldman Sachs International, instructed by Bird & Bird LLP.

Mark Howard QC and Stephen Midwinter appeared for the Bank of Portugal, instructed by Enyo Law LLP.